In an unrelated development, the IRS provided a safe harbor
method for accounting by accrual-method taxpayers for FICA and FUTA
tax liabilities incurred by compensation earned at year end and paid
in the new year. The recurring-item exception of Treas. Reg. § 1.461-
5(b)(1)(i) will be available to taxpayers under the all-events test,
the Service said in Revenue Procedure 2008-25. The method is included
as an automatic consent to change of accounting provided under Revenue
Procedure 2002-9. Citing Eastman Kodak Co. v. U.S. (37 AFTR2d
76-1200), the Service and Treasury noted that taxpayers may not know
at the end of a taxable year whether an employee has reached any
applicable payroll tax ceiling by the time the tax is paid, raising a
question as to when the corresponding liability is fixed. The method
is effective for taxable years ending on or after Dec. 31, 2007.
FICA Holdings Overturned
The U.S. Court of Appeals for the Federal Circuit recently
reviewed three prior decisions of the U.S. Court of Federal Claims
involving railroad operator CSX Corp. and whether certain payments to
laid-off employees were wages for purposes of FICA (for the lower
court’s main ruling, see “Tax
Matters: When Are Wages Not FICA Wages?” JofA, Dec. 06,
page 80). The circuit court held that all pay ments made by CSX were
subject to the FICA tax and rejected the lower court holding that some
of the payments were supplemental unemployment compensation benefits
not subject to FICA. The case is CSX v. U.S., 101 AFTR2d 2008-1120.
